Truworths has been floundering for some time as far as fundamental operating performance is concerned.
It’s still a remarkably well-run business and is one of the few clothing retailers left that still relies predominantly on credit for its survival. The group sells mainly upmarket brands and its philosophy is that credit is offered to customers who couldn’t otherwise afford most of the brands in its stable.
But growth has been elusive. Until the latest set of results, the five-year compound average growth rate (CAGR) in turnover was a dismal -0.3% and headline earnings per share (Heps) was even worse at -4.9%. Virtually all metrics were in decline. By all accounts, their UK acquisition, Office, had a “for sale” sign outside, though management never confirmed this.
That all changed in the most recent set of results, but will it be enough to make a material difference to Truworths’ outlook? Or is it destined to remain a healthy dinosaur?
The results presentation on September 2 for the year to July 3 2022 was notable as much for what wasn’t said as it was about a good performance. Against a languid local economy, Truworths managed to extract some decent top-line growth and produced record earnings and dividends.
Group sales grew 9% to R18.5bn and Heps soared 49% to 779.8c. That’s a huge improvement on the exceptionally poor first-half performance, hit badly by the effect of the riots in KwaZulu-Natal and Gauteng in July 2021. Office also posted a healthy turnaround.
But the really juicy bits related to Truworths’s decision to stop using the Primark trademark and to keep us all guessing when CEO Michael Mark will finally retire. Both events were handled deftly and could easily have been missed if the viewer hadn’t been paying attention.
Primark is a UK/Irish-owned multinational low-end retail chain, concentrating on fast fashion. It is a subsidiary of Associated British Foods and has stores across Europe and in the US. Truworths won a court case against Primark in the Supreme Court of Appeal, which allowed them to use the Primark label in SA, as the British parent hadn’t used the trademark since registering it many years ago.
After establishing a base of 11 stores in the past year, Truworths abruptly terminated the use of the Primark label and will convert all of them to the Sync label. Mark said the decision taken in consultation with the British/Irish parent and was “very amicable”, but he refused to comment further.
Although Primark was tiny in Truworths’ world, it highlighted the group’s willingness to enter the low-end, predominantly cash, segment of the market. It will be instructive to see whether the parent company eventually decides to set up Primark shops in SA in their own right.
At the helm of for 32 years, Mark was scheduled to hand over the CEO’s responsibility to CFO Manny Cristaudo or Truworths SA deputy MD Sarah Proudfoot. At the presentation, Mark mentioned succession but gave no specific date, saying only that it might be later this year or even slightly later.
And he didn’t mention his successor by name. Perhaps Cristaudo and Proudfoot will share the responsibility? Or perhaps it will go further, with some sort of special position being created for Mark so that he can remain a member of the triumvirate?
Truworths trades on a really cheap price-earnings ratio of 6.7. But against the background of higher interest rates and poor economic growth locally, it’s difficult to see where strong growth is coming from next year and beyond. And the UK is heading for a five-quarter recession next year, according to the Bank of England — so no joy there for Office either.